CBRE - Brisbane improving

The Brisbane housing market is starting to experience the benefits of the resources boom but the Gold Coast remains one of the “worse performing markets,” says CBRE in its second quarter south-east Queensland market view report. 

The report notes that the Sunshine Coast housing market continues to struggle – though not to the same extent as the Gold Coast market – with both coastal markets not seeing much benefit from the mining boom in central and northern Queensland.

See Property Observer

Buyers Now Saying Yes?

"The head of real estate strategy at Macquarie Capital, Rod Cornish, uses an affordability measure that brings together the mortgage rate, the level of house prices and the ability of households to pay.

Many will have seen the Cornish graph already. It is easy to follow: when affordability falls, so does housing activity; when affordability rises, housing follows.

All the elements of affordability are now moving the right way.

House prices have dropped. Mortgage rates are falling. And household income is rising.

But there are lags and hiccups. As Cornish says, mortgage rate moves take six months to have an impact. The two cuts late in 2011 would be boosting housing now if the banks had not cut the shift short with out-of-cycle rate rises."

See AFR Story
But...
"The Reserve Bank of Australia’s rate cuts, which started in November, have not boosted demand in the housing market, meaning one in seven homes bought in the past five years are still worth less than their purchase price."
See Home Buyers Still Uninspired

No Smoking in Some Apartment Buildings

Archers director Andrew Staehr said building owners across Queensland had passed by-laws to stop people smoking in apartment buildings, with several in mixed-use developments in inner-city Brisbane.
See City News story

Interest Rates Down in Australia

The Australian Reserve Bank decreased its interest rate today by 0.25%.  BOQ immediately dropped its home lending rate by 0.2%.  Will this assist the Brisbane housing market?  It will not hurt, but it may not be enough to assist.  What drives residential property growth more is population growth and employment growth.  In Brisbane, many State Government consultants, contractors and employees are being fired, with the government bankrupt and trying to decrease its workforce by 20%.  So this will have a bigger, negative impact than any positive impacts of the interest rate decreases.

RP Data Reports

Click on reports to make bigger.

Brisbane Doing Better Than Melbourne

"As at the end of May, Melbourne dwelling prices are off about 5% this year. But most of this decline has materialised since the middle of April. Specifically, home values in Melbourne have declined by 4.2% since the 15th of April.

In contrast, the Sydney housing market, which is denoted by the black line, has rebounded nearly 1% since the second week of May. In seasonally-adjusted terms, this would be an even stronger outcome. Likewise, we can see some recent stabilisation in raw Brisbane dwelling values, which are illustrated by the orange line in the chart above."

See Property Observer article, by Chris Joye.

RP Data Report

From a recent RP Data Report:

Brisbane values and volumes

• Over the past 12 months, property values in Brisbane have fallen by -6.6 percent for houses and units declined by -5.4 percent, underperforming the ten year average annual growth rates of 8.0 percent for houses and 7.0 percent for units.
• Although the combined capital cities began to record a strong rate of growth post GFC, Brisbane’s property market underperformed and has recorded limited growth in home values over the past five years.
• Brisbane’s property market also experienced distinct cycles over the past decade, with annual property value growth recording an historic high in November 2003, then consolidating over 2004 to 2006, followed by a strong recovery prior to the GFC however, Brisbane has been underperforming since 2008.
• Over the last five years, sales volumes have been recorded an average of 3,915 transactions per month.
• The current sales volumes are estimated to be -24 percent lower than the five year average.
• Brisbane’s median house price is recorded at $430,000 and the median unit price sits at $360,000 in April 2012. 

Key Statistics

• Compared to the combined capital city average, Brisbane’s property values have been underperforming since the beginning of 2009.
• Over the past five and ten years, Brisbane has experienced a much stronger housing market performance than it has over the past 12 months.
• Vendor discounting rates are currently recorded at an average of -9.5 percent for houses and -7.5 percent for units. At the same time last year, discount rates were recorded at -8.9 percent for houses and -7.8 percent for units.
• In March 2012, Brisbane houses were on the market for an average of 86 days and 58 days for units. In March 2011, houses took an average of 88 days to sell and units 66 days, highlighting a slight improvement in conditions for sellers.
• Vendors who sold their dwellings over the past year had owned their houses for 8.7 years on average and units for 6.9 years. 
• In June 2011, Brisbane’s estimated population was roughly 2.1 million persons, growing by 1.7 percent over the year.
• Brisbane dwelling are each home to an average of 2.7 persons. 

Brisbane Northbank Redevelopment

Campbell Newman is proposing new plans for the North Bank area of the Brisbane River, including George Street.  It seems like the hotel and casino proposal for the old State Library site has been put on ice by the new government.

See stories on Brisbane Development and Brisbane Times.

According to Newman, re the image shown above: “It’s just an artist’s impression to give people a feel for the excitement we have for the revitalisation of the precinct.”

Brisbane Apartment Values Up Slightly in May

Residential property values have continued to slide across the capital cities, with the RP Data-Rismark Home Value Index recording a -1.4 per cent fall in dwelling values over the month of May.

The latest drop brings the cumulative decline to -2.2 per cent over the first five months of 2012 and overall values are down -5.3 per cent over the past twelve months.

Much of the weakness is confined to the detached housing market rather than apartments. According to RP research director Tim Lawless, unit values have been much more resilient to value falls compared to houses.  It is clear that the market is becoming increasingly price point driven. Unit values across the combined capitals increased in May and they are up by 1.3 per cent over the first five months of the year. Based on median prices, unit prices are generally around 15 to 20 per cent lower than house prices.

Investment yields also tend to be higher and units are often located more strategically compared with their detached Mr Lawless said.

Another hurdle for the property market is the large number of properties currently being advertised for sale. Based on RP Data estimates, there were approximately 308,500 homes advertised for sale across Australia during May which is almost 9 per cent more than at this time last year.  While stock levels have reduced since the latter part of 2011, Mr Lawless said that this result still represents a larger than normal pool of homes available for sale at a time when transaction volumes are running well below their five year average.

Brisbane Apartment Capital Growth/Losses to 31 May 2012 (RR Data Rismark Index)
Month 0.3%
Quarter -2.1%
Year to Date -3.9%
Year on Year -4%

Brisbane Apartment at Bottom?

Valuers HTW say in their recent report that the Brisbane apartment market has bottomed out.  They also say this about residential property in Brisbane:
"The reality on the ground is this – most agents are stating with certainty that there has been an improvements in the number of buyers under $500,000 with the vast majority being investors. Most agents who speak openly and honestly will tell you that this is a good sign but let’s not start popping the corks just yet. We would also say that many who have made the positive the call on the sub half million property turnaround will just as quickly remind you that over $500,000 property is still a ghost town."
HTW June 2012 Month in Review

USA property market is turning around?

From my conversations with U.S. brokers (real estate agents), it appears that in some markets in the United States, there are now more buyers than sellers, with multiple offers on properties for sale.  This view is supported by a recent USA Today article:

Seller's market returns as homes for sale drop in some areas

http://usat.ly/JvJMoI

Update:  See also NY Times

Chinese buying up Australian apartments: They are cheap!

See story in SMH
Meriton chief Harry Triguboff said 80 per cent of his customers are Chinese.  One reason is that foreign buyers can buy an unlimited number of apartments off-the-plan.  A good reason to avoid off-the-plan apartments today.

Slow Growth For Property Values

Some extracts from a recent SMH article (and the SMH is usually pro-property, because its biggest advertisers are real estate agents):

''Realistically, anybody looking to build up wealth and equity in their property needs to have a long-term view. They're not going to be accumulating equity in their property in the current conditions, or over the next couple of years, very quickly,'' Mr Lawless said.

Christopher Joye, an executive director of Yellow Brick Road Funds Management, predicted that over the next 10 years, house price growth would be about half what it had been in recent decades.

''For the last 20 years or so house prices grew by nearly 8 per cent a year, however over the last four years they've only grown by 2 per cent per annum,'' Mr Joye said. ''Over the next 10 years we only expect house prices to track household incomes and we project that disposable household income should grow by about 4 to 5 per cent per annum.''
 See SMH

Sam Vecchio

An interesting decision regarding Sam Vecchio, who is the developer of the Rive apartment complex at Breakfast Creek.  Sam Vecchio's prior development was Fresh at Taringa.  A bad job was done on the stippling, and a few years later, it is still not fixed.  Vecchio has stacked the body corporate committee with family members, some of whom do not turn up to meetings.  Vecchio's business practices have been called into question.  As the Commissioner has found:  "The applicant disputes the committee resolution on the basis there is a conflict of interest between the committee member, Sam Vecchio, and Phoenix Drywall (the individual selected to perform the repairs). The applicant says Phoenix Drywall is currently working for Sam Vecchio. ... I am satisfied a serious legal question exists as to whether the costs involved in the resolution dated 16 March 2012 are reasonable."  See decision.

No Pets Policy Unreasonable

A recent decision holding that a "no pets policy" was unreasonable.  See Palm Grove Village.

In another recent decision, Bay Vista Apartments, the adjudicator decided that it was permissible for a potential resident (owner or tenant) to obtain approval prior to becoming a resident:

"I see no reason why a lot owner could not seek approval for a pet on behalf of a prospective owner who would like to keep a pet if they became an owner, or indeed for a prospective lot owner directly seeking approval for a pet. Similarly I see nothing to prevent an owner seeking approval on behalf of a current or prospective tenant. Of course any approval would be conditional on the person actually purchasing (or leasing) the lot. ...

In my view, preventing consideration of pet requests by or on behalf of a prospective lot owner or occupier creates unreasonable difficulties for an owner in selling or leasing their lot. It is entirely understandable that people with pets would not wish to rent or buy a lot without the prior assurance that they will be able to keep their pets. If they are not permitted to seek approval until they move in, they will be in an invidious position if approval is not then given.

I am at a loss to see what possible disadvantage there could be to the Body Corporate from deciding the matter before a sale or lease is completed. It could seek reasonable further information about the prospective occupant or pet if they wished. If approval is given conditional on the sale or lease being completed, it lapses if the sale or lease does not proceed. By deciding the issue before the occupancy commences, they also avoid the situation of an unapproved pet being brought on the scheme while a decision is pending."

Heavy Gearing

According to the OECD, Australian households remain heavily geared with a high ratio of household debt to disposable income(183.7%), but this has declined from the pre-GFC level of 186.4%.  In 2000, this ratio was 124%.  The OECD average was 98%.  See story here.

Many Australians are prepared to borrow heavily to buy a residence, believing that "rent money is dead money".  But that is not always the situation.  Buying a house or apartment for the short term is often a bad decision.  And if you have to move with your job, as some Qantas engineers found out recently, owning a house can be a liability.

RP Data April Report

"Property values across the combined capital cities of Australia showed renewed softness in the latter half of April with dwelling values falling by -0.8 per cent after a stable first quarter. Over the three months ending April 30 the RP Data-Rismark Index has seen values rise by 0.3 per cent. On a year to date basis, dwelling values are now down -0.7 per cent.

Values were down across five of the eight capital cities over the month of April, with Hobart (-2.9%), Melbourne (-1.7%) and Brisbane (-1.3%) recording the largest falls. On a 12 month basis capital city dwelling values have fallen by -4.5 per cent with the weak conditions in Melbourne (-7.0%) and Brisbane (-6.4%) dragging the weighted average down.

RP Data‟s research director Tim Lawless said that the housing market gains seen throughout February and March, which delivered a flat first quarter result, have now been mostly offset by the -0.8 per cent fall over the month of April."

Southpoint Dead?

It is rumoured that Suncorp has pulled out of the Southpoint deal, because the developer could not get finance.
See here and here.

Suncorp staff were told that the developer cannot get funding, so Suncorp have withdrawn from the deal.

Budget to Impact Property Prices

Australian residential property will now be less attractive to foreigners after the Federal Budget last night.  As a large number of foreigners buy apartments off-the-plan in Queensland, this market for new apartments will be impacted by the changes, and the impact is negative.

The Government will remove the 50 per cent CGT discount for non residents on capital gains accrued after 7.30 pm (AEST) on 8 May 2012. The CGT discount will remain available for capital gains accrued prior to this time where non residents choose to obtain a market valuation of assets as at 8 May 2012. This measure would affect capital gains relating to taxable Australian property (e.g. capital gains from Australian real estate or interests in Australian land rich entities) which are realised by non-residents who would otherwise be eligible for the CGT discount (e.g. foreign individuals).

The Government will adjust the personal income tax rates and thresholds that apply to non residents’ Australian income. From 1 July 2012, the first two marginal tax rate thresholds will be merged into a single threshold. The marginal rate for this threshold will align with the second marginal tax rate for residents (32.5 per cent) and will apply to all taxable income below $80,000. From 1 July 2015, the same marginal rate will again rise from 32.5 per cent to 33 per cent.
Source:  KWM

Charlotte Towers Sale

Apartment 2808 in Charlotte Towers, 128 Charlotte Street, is reported as sold for $510,000.  This is a 2 bed, 2 bath apartment.  Total area is 87 sqm, so this is $5,800 a sqm.

No Apple Store for M&A

Is Laing O'Rourke misleading people, or just careless?  Last month, to much fanfare, it released a press release to report that it has signed up a two level Apple store at its McLachlan & Ann (M&A) building in the Valley.  See Press Release and prior post.

But it is not an Apple store, but an Apple reseller.  Today's Courier Mail has an advertorial that refers to a "US-based Apple reseller."  There is a big difference between an Apple Store and an Apple reseller.  Myer, JB HiFi and Kmart are Apple resellers.  And there already is an Apple reseller just around the corner (Mac1 at James Street).

So no Apple Store for M&A, just a U.S. electronics store.  So that decreases not increases the appeal of M&A.

Genworth Says Queensland is a Problem

U.S. mortgage insurer, Genworth, that has operations in Australia, released a report yesterday to Wall Street regarding its Australian residential mortgage insurance business.  See report here.  The report says that its overall performance by geography is solid, with the exception being Queensland.

Coastal Queensland is particularly pressured.  Delinquency development in coastal Queensland has risen to 1.13%, compared with 0.8% for Queensland and 0.54% across its loan insurance portfolio.  The peak to trough decline in values is 17% for FN Qld, 12% for Sunshine Coast, 15% for the Gold Coast and 8% for the rest of Queensland.  The average mortgage insurance claim in coastal Queensland has risen to over $120,000.  This is significant enough to report to Wall Street.  See article here.  And note this article.

Loss-making Landlords

According to the ATO, there were 1,751,679 property investors declared to the ATO in 2009-10 - representing one in seven taxpayers - an increase of 59,235 from the 2008-09 financial year.

Total losses on investment properties were $4.810 billion in 2009-10, or $2746 per property investor, down from $6.528 billion ($3857 per investor) in 2008-09. Of the 1,751,679 property investors recorded by the ATO in 2009-10, 63% or 1,110,922 were "negatively geared", meaning that holding costs (eg, interest payments, maintenance, and other costs) outweighed income from rents.

Of these negatively geared investors, nearly three-quarters earned less than $80,000 in 2009-10, and the average loss was $9132 per negatively geared investor, or $176 per week.

The concentration of negatively geared properties in lower income and older age cohorts has potentially important ramifications for the Australian housing market. The risk of widespread selling of investment properties is likely to intensify once Australia’s 1.1 million negatively geared investors come to the realisation that there is little prospect of a resumption of past strong rates of capital growth and they are stuck with a loss-making investment.

See Full Story here and report here

Rental Demand in Brisbane

Demand for rental properties continues to strengthen with vacancy rates tightening across the State, according to the Real Estate Institute of Queensland (REIQ). The REIQ March residential vacancy rates, released today, show the majority of regions experiencing strong demand from tenants with vacancy rates in many areas now below 3 per cent. A vacancy rate of 3 per cent is generally considered to be the equilibrium point of supply and demand. REIQ CEO Anton Kardash said the tightening rental market was a result of the slower sales market over the past 12 months in particular.

In Brisbane, the vacancy rate has reduced to 1.7 per cent, from 2.3 per cent in December last year. Brisbane’s inner-city recorded a vacancy rate of 1.4 per cent, down from 1.9 per cent in December. Agents from REIQ inner Brisbane accredited agencies report supply levels remaining limited as tenants stay put, students are settled for the year, and potential first home buyers still opt for a wait-and-see approach. Investment properties currently up for sale are largely being bought by owner-occupiers which is also contributing to less rental stock overall.
Source:  REIQ Press Release

I have been monitoring availability of unfurnished two bedroom apartments in the Brisbane downtown area.  Let me say that there are not many of such apartments available for rent.

Limited but real competition

"So how have things actually faired in the last four months? agents report patchy progress, but on balance they have been more encouraged since we hit the new year. many described their 'best months for some time' during February and March. the upshot seems to be this – vendors have reached their bottom price and buyers are now willing to meet them. most sellers who had to get out of the market come-what-may have done so. If not, they have found alternative strategies and decided to hold onto their dirt until the next upswing. Buyers who were putting in substantially discounted offers on properties are finding there is now limited but real competition. as a result if they want to secure some real estate, they do have go beyond their ridiculously low dream price and get a little dose of reality. the outcome has been more sales volume but prices remain flat. For example, sub $1m in good locations is doing just fine and if you’re a first home buyer within 10 to 15km of the CBD, then you’ll probably find there is a little more competition to secure some real estate."
HTW Month in Review

Unemployment

I like this quote from the Chief Economist from Morgan Stanley:
"Traditionally what has hurt people has not been rising (interest) rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast.''
See Daily Telegraph from 2009.
Easy credit followed by high unemployment rates is a good indicator of whether there will be a residential property bust.  Look at Spain, with 25% unemployment for example.  So at present, Queensland should be safe.  But if the mining and construction boom ends....

Units the Way to Go: RP Data

"Within a 10-kilometre radius of each city centre the opportunities to purchase units below $500,000 are much more abundant than they are to purchase detached houses. Across all cities, 69% of suburbs within 10 kilometres of the city centre have a median unit price below $500,000 and each individual city has at least 20% of suburbs with a median price below $500,000."
Source
Table showing Median Unit Prices

111+222 Hole plus 103 Mary Street

Photo today of the 111+222 hole (still with water) and the demolition site for 103 Mary Street.  You can see 212 Margaret Street in the background and River Park Central to the right.

Devine bullish about Brisbane

“We are very bullish in a market people are saying is the worst they have seen in 20 years," Devine says.

“Brisbane is in the doldrums in terms of the property market, but not in the doldrums for Metro. We know what we are doing and there are people out there who love what we are doing."

See Brisbane Business News

111+222 in Brisbane

The 111+222 development appears to be moving forward, with the smaller tower (commercial office space at 111 Mary Street) being built first it seems.

The large tower will be 90 storeys, located at 222 Margaret Street.  The plans are for a hotel from level 5 to level 21, and apartments from level 24 to level 88.  
See www.111plus222.com

Dog Allowed, Yet Again

"Based on the material presented, I am not satisfied the committee’s decision to deny the applicant’s pet request was reasonable in the circumstances. This is particularly the case given that no evidence has been provided to suggest the dog barks excessively or otherwise causes a nuisance which interferes with other owners use and enjoyment of a lot or common property. Accordingly, I consider the applicant should be granted permission to keep her dog in her unit pursuant to by-law 11. "

See Gateway Gardens Decision

Kurv in Newstead

A proposed new development in Newstead, called Kurv.  It is located at 31 Longland Street, Newstead.

• Ground floor restaurant and offices.
• Five levels of 55 apartments
• 25 – studio apartments
• 30 – two bedroom apartments

Macrossan Residences Sale

I bet well-known Brisbane solicitor and Labor Party identity Con Sciacca is not happy.  He purchased an apartment off-the-plan in 2008 in Macrossan Apartments for $1,835,000.  The developer went bankrupt, and the remaining apartments have been bought by an investor, who is listing them for resale at "Almost $1 million below what they cost."
"Were Selling for up to $3M, Now Priced from $1.395M to $1.575M"

(I suspect that the real estate agent is exaggerating slightly - I doubt that the same apartment that Con purchased would sell for less than $1M.  So the million dollar discount is a bit of a stretch.  Video here.)

These discounts make it hard for an original buyer to resell without making a huge loss.

In any event, even these discounted prices are high for a 3 bedroom apartment that is not riverfront and that is sandwiched by Skyline and Soleil.

Readjustment of contribution schedule lot entitlements

"Much of the animosity between the applicant and the body corporate committee has arisen following his submission to the committee of a motion to reverse contribution lot entitlements to the “pre-adjustment level”. Based on advice that it had obtained from MBA Legal, the committee declined to lodge a new community management statement reflecting “pre adjustment lot entitlements”. As a result, the applicant issued a number of circulars to other lot owners regarding his request for a reversion of lot entitlements.

Within bodies corporate, few issues have been more polarising than the adjustment and/ or readjustment of contribution schedule lot entitlements (CSLE’s) which set the proportion each owner contributes to body corporate expenses. The Body Corporate and Community Management Act 1997 previously provided that in certain circumstances, an owner could apply to the District Court or a specialist adjudicator for an order to have the original entitlements adjusted. Where such an order was made, levies payable by some owners decreased while others increased.

In November 2010 the Minister for Tourism and Fair Trading introduced into parliament a bill to amend the Body Corporate and Community Management Act 1997. This bill was passed by parliament in early 2011 and changed the criteria for adjustment of contribution lot entitlements. These amendments also include a procedure for certain owners to seek a reversal of previous adjustment orders. Except in limited circumstances, such as where the adjustment order merely formalized an agreement made by the parties, or there has been a material change such as further subdivision, the body corporate is obliged by the legislation to lodge a new community management statement reflecting the original lot entitlements. Where such action is taken, levies payable by some owners decrease while others increase.

Given that all lot owners are members of the body corporate, it is important that they have an opportunity to air any grievances and have input into the management of the scheme. Owners often have opposing views on various matters, but in my view robust discussion and debate is an important part of body corporate decision-making. This requires that, within reason, all owners feel free to express their point of view without unreasonable threats of defamation proceedings."

See Q1 Decision

Another Big Loss For Off-The-Plan Buyer

Many buyers in Niecon's The Oracle development at Broadbeach purchased off the plan and failed to settle.  A recent court decision shows the losses that an off-the-plan buyer may suffer if the buyer does not settle.

Purchase price for apartment 601 - $1,010,000
Plus holding costs & interest from settlement until court judgment - $196,631
Less estimated net proceeds if sold today - $700,000
Plus agents fees to sell - $29,645
Plus legal fees to sell - $2,200
Less Deposit - $101,000
Total owed = $437,476, plus interest at 12% until this is paid, plus legal costs of the lawsuit.


So this buyer lost a total of at least $538,476, which is more than 50% of the contract price for the apartment, and didn't get the apartment.  Note that the valuation of the apartment dropped 30%.  Take care when buying off the plan.  (And read this book first!)